Let's try to keep this short and simple.
There won't be any changes in policy rates by the ECB today as policymakers are still in autopilot mode when it comes to that for the time being. In March, the ECB communicated that APP purchases should be wrapped up in Q3 with scheduled buying of €40 billion in April, €30 billion in May and €20 billion in June.
Based on that timeline and policy trigger (that rate hikes will only come after APP purchases end), that leaves some breathing space before any actual changes to policy rates. That said, with inflation still rampaging across the euro area, it is going to be a challenge for the ECB to try and maintain their composure on both fronts.
So, what can we expect from the ECB today?
In my view, the ECB will do what it does best. That is to kick the can down the road for as long as they possibly can afford to. However, there is a growing divide between policymakers in the central bank on the urgency to take action. As such, it isn't going to be as straightforward as seeing the ECB sit on its hands.
The first thing to watch today will be any changes to the timeline of tapering. For now, Q3 remains the target but if the ECB brings that forward to Q2, that will start to see more hawkish undertones grow.
That said, the next policy meeting will be on 9 June so that does give the ECB some time to tinker with this. So, today may not likely be the day where they announce any hasty changes to the outlook and their plans.
As such, sticking with the status quo seems like the most viable option. And that perhaps poses some downside risk (or at least limits any major upside) to the euro and European bond yields, even if markets aren't expecting much from the ECB today.
The next key thing to watch will be Lagarde's press conference. The ECB will want to bide its time to wait on inflation data in the coming months before reacting. As such, Lagarde will have to try and communicate that in a clear and concise manner. Any error in communication could swing the euro either way and that is always a risk to be mindful about.
TLDR: Barring any unintended hawkish signals, the ECB is to stick with venting about the risks of higher inflation amid the Russia-Ukraine conflict while arguing to be data-dependent i.e. wanting flexibility. The door remains open for a rate hike later in the year but not before APP purchases are concluded, and that is still seen in Q3. That should keep EUR/USD between the 1.0800 to 1.0940 range at the moment.
